Genentech Announces Third Quarter 2007 Results

SOUTH SAN FRANCISCO, Calif.--(BUSINESS WIRE)--Oct 15, 2007 -
Genentech, Inc. (NYSE:DNA) today announced financial results for
the third quarter of 2007. Key results for the third quarter of
2007 include:

-- U.S. product sales of $2,155 million, an 18 percent increase
over U.S. product sales of $1,830 million in the third quarter of
2006.

-- Non-GAAP operating revenues of $2,905 million, a 22 percent
increase over operating revenues of $2,384 million in the third
quarter of 2006(1); GAAP operating revenues of $2,908 million,
which include recognition of $3 million of deferred royalty revenue
associated with the acquisition of Tanox, Inc.

-- Non-GAAP net income increase of 22 percent to $778 million
from $637 million in the third quarter of 2006(1); GAAP net income
increase of 21 percent to $685 million from $568 million reported
for the third quarter of 2006.

-- Non-GAAP earnings per share increase of 24 percent to $0.73
per share from $0.59 per share in the third quarter of 2006(1);
GAAP earnings per share increase of 21 percent to $0.64 per share
from $0.53 per share reported for the third quarter of 2006.

Reconciliation between non-GAAP and GAAP earnings per share for
the third quarters of 2007 and 2006 is provided in the following
table: -0-

(+) Third quarter 2007 Avastin U.S. product sales results
include a net recognition of approximately $5 million in previously
deferred revenue in conjunction with the company's Avastin Patient
Assistance Program launched in February 2007.

(++) Amounts may not sum due to rounding.

Total Costs and Expenses

Information on costs and expenses for the three months ended
September 30, 2007, is provided in the accompanying tables. Key
cost and expense highlights include the following:

-- Cost of sales (COS), on a non-GAAP basis, increased 31
percent to $390 million, from $297 million in the third quarter of
2006(2). Non-GAAP COS as a percentage of product sales was 17
percent, compared to 15 percent for the third quarter of 2006. On a
GAAP basis, COS increased 37 percent to $406 million, including
employee stock-based compensation expense of $16 million. GAAP COS
for the third quarter of 2007 was 17 percent of product sales,
compared to 15 percent in the third quarter of 2006. COS for the
third quarter of 2007 includes approximately $53 million in charges
related to the termination of a contract manufacturing
agreement.

-- Research and development (R&D) expenses, on a non-GAAP
basis, increased 38 percent to $578 million, from $419 million in
the third quarter of 2006(2). Non-GAAP R&D expenses as a
percentage of operating revenues were 20 percent, compared to 18
percent for the third quarter of 2006. On a GAAP basis, R&D
expenses increased 35 percent to $615 million, including employee
stock-based compensation expense of $37 million, from $454 million
in the third quarter of 2006. GAAP R&D expenses for the third
quarter of 2007 were 21 percent of operating revenues, compared to
19 percent in the third quarter of 2006.

-- Marketing, general and administrative (MG&A) expenses, on
a non-GAAP basis, increased 8 percent to $497 million, from $460
million in the third quarter of 2006(2). Non-GAAP MG&A expenses
as a percentage of operating revenues were 17 percent, compared to
19 percent in the third quarter of 2006. On a GAAP basis, MG&A
expenses increased 8 percent to $541 million, including employee
stock-based compensation expense of $44 million, from $501 million
in the third quarter of 2006. GAAP MG&A expenses for the third
quarter of 2007 were 19 percent of operating revenues, compared to
21 percent in the third quarter of 2006.

-- GAAP results included a one-time in-process research and
development (IPR&D) charge of $77 million, or $0.07 per share,
for acquired IPR&D projects and technologies associated with
the acquisition of Tanox, Inc., which was completed on August 2,
2007. GAAP results also reflected a gain of $0.07 per share (after
tax) related to the acquisition of Tanox, resulting from the
application of fair value measurement principles required in the
accounting for the acquisition of a company with which a prior
business relationship existed.(3)

Clinical Development

Genentech announced that in the third quarter of 2007 it
resubmitted the supplemental Biologic License Application for
Avastin(R) (bevacizumab) with chemotherapy in first-line metastatic
breast cancer based on data from the E2100 trial. The U.S. Food and
Drug Administration (FDA) notified the company that the Oncologic
Drugs Advisory Committee (ODAC) meeting would occur in December
2007 and the FDA action date is February 23, 2008.

Genentech also announced that enrollment was completed in the
Phase III first-line HER2-negative metastatic breast cancer study
RIBBON-1 evaluating physicians' choice of chemotherapy with
Avastin, the Phase III study of Rituxan(R) (rituximab) in
second-line relapsed chronic lymphocytic leukemia, and the Phase II
study of topical VEGF (telbermin) as a treatment for diabetic foot
ulcers. Additionally, Genentech initiated enrollment in a Phase III
combination study of Rituxan and Avastin in first-line diffuse
large B-cell lymphoma, a Phase II combination study of Avastin and
sunitinib malate in renal cell carcinoma, and a Phase I study of
the anti-cMET molecule MetMab in patients with solid tumor
malignancies.

Webcast

Genentech will be offering a live webcast of a discussion by
Genentech management of the earnings and other business results on
Monday, October 15, 2007, at 2:15 p.m. Pacific Time (PT). The live
webcast may be accessed on Genentech's website at
http://www.gene.com. This webcast will be available via the website
until 5:00 p.m. PT on November 5, 2007. A telephonic audio replay
of the webcast will be available beginning at 5:15 p.m. PT on
October 15, 2007 through 5:15 p.m. PT on October 22, 2007. Access
numbers for this replay are: 1-800-642-1687 (U.S./Canada) and
1-706-645-9291 (international); conference ID number is
17476409.

About Genentech

Founded more than 30 years ago, Genentech is a leading
biotechnology company that discovers, develops, manufactures and
commercializes biotherapeutics for significant unmet medical needs.
A considerable number of the currently approved biotechnology
products originated from or are based on Genentech science.
Genentech manufactures and commercializes multiple biotechnology
products and licenses several additional products to other
companies. The company has headquarters in South San Francisco,
California and is listed on the New York Stock Exchange under the
symbol DNA. For additional information about the company, please
visit http://www.gene.com.

About Genentech's Commitment to Patient Access

Genentech is committed to eligible patients having access to our
therapies. For those eligible patients treated for approved
indications in the United States who do not have insurance or who
cannot afford their out-of-pocket co-pay costs, Genentech has
several support programs. Since 1985, Genentech has donated free
product to uninsured patients and those deemed uninsured due to
payor denial through its Genentech(R) Access to Care Foundation
(GATCF) and the Genentech Endowment for Cystic Fibrosis. In 2006
alone, GATCF supported over 14,000 patients by providing
approximately $205 million of free product. Since 2005, Genentech
has donated approximately $70 million to various independent public
charities that provide financial assistance to eligible patients
who cannot access needed medical treatment due to co-pay costs.
Through its Single Point of Contact (SPOC) program, Genentech
provides patients with assistance and information on a broad array
of reimbursement services and support.

For information on Genentech's latest business and product
development events please refer to
http://www.gene.com/gene/news/press-releases/index.jsp.

This press release contains a forward-looking statement
regarding expected growth in non-GAAP EPS for 2007. Such statement
is a prediction and involves risks and uncertainties such that the
actual result may differ materially. Among other factors, growth in
non-GAAP EPS could be affected by unexpected safety, efficacy or
manufacturing issues, additional time requirements for BLA
preparation or decision making, need for additional data or
clinical studies, FDA actions or delays, the failure to obtain or
maintain FDA approval, changes in dosing or duration of product
use, competition, pricing, reimbursement, intellectual property or
contract rights, the ability to supply product, product
withdrawals, new product approvals and launches, product sales,
contract revenues and royalties, cost of sales, R&D or MG&A
expenses, stock-based compensation expense, unanticipated expenses
such as litigation or legal settlement expenses or equity
securities write-downs, fluctuations in tax and interest rates, and
changes in accounting or tax laws or the interpretation of such
laws. Please also refer to Genentech's periodic reports filed with
the Securities and Exchange Commission. Genentech disclaims, and
does not undertake, any obligation to update or revise the
forward-looking statement in this press release.

(1) Genentech's non-GAAP operating revenues exclude recognition
of deferred royalty revenue associated with the acquisition of
Tanox, Inc. Genentech's non-GAAP net income and non-GAAP earnings
per share exclude the after-tax impact of certain items associated
with the acquisition of Tanox, Inc., including in-process research
and development expenses (a non-recurring expense in the third
quarter of 2007), recurring recognition of deferred royalty
revenue, recurring amortization of intangible assets, and a gain
pursuant to Emerging Issues Task Force (EITF) issue no. 04-1 (a
non-recurring gain in the third quarter of 2007). Non-GAAP net
income and non-GAAP earnings per share also exclude recurring
charges related to the 1999 redemption of Genentech's stock by
Roche Holdings, Inc., litigation-related special items, and
employee stock-based compensation expense. The differences in
non-GAAP and GAAP numbers, including expected 2007 earnings per
share, are reconciled in the accompanying tables and on
http://www.gene.com.

(2) Genentech's non-GAAP reported COS, R&D and MG&A
expenses exclude the effects of employee stock-based compensation
expense associated with Genentech's adoption of FAS 123R on January
1, 2006. Stock-based compensation expense was recognized in COS for
the first time in the first quarter of 2007 as the company
capitalized employee stock-based compensation into inventory
produced in 2006 and began to sell those products in 2007. The
differences in non-GAAP and GAAP numbers are reconciled in the
accompanying tables and on http://www.gene.com.

(3) Pursuant to purchase accounting guidance, estimates
associated with the valuation of the assets and liabilities from
the acquisition of Tanox, Inc. may change if actual results
materially differ from initial estimates. -0-

GENENTECH, INC.
RECONCILIATION OF GAAP to NON-GAAP NET INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended September Ended September
30, 30,
---------------- ---------------
2007 2006 2007 2006
--------- ------ ------- -------
GAAP net income $685 $568 $2,138 $1,519
Royalty revenue(1) (3) - (3) -
Employee stock-based compensation
expense under FAS 123R(2) included in
the following operating expenses:
Cost of sales 16 - 49 -
Research and development 37 35 114 101
Marketing, general and administrative 44 41 137 124
In-process research and development(3) 77 - 77 -
Gain on acquisition(3) (121) - (121) -
Recurring charges related to
redemption and acquisition(4) 38 26 90 79
Special items: litigation-related(5) 14 13 41 40
Income tax effect(6) (9) (46) (117) (132)
--------- ------ ------- -------
Non-GAAP net income $778 $637 $2,405 $1,731
========= ====== ======= =======
Non-GAAP earnings per share:
Diluted $0.73 $0.59 $2.25 $1.61
========= ====== ======= =======
Non-GAAP weighted average shares used
to compute earnings per share(7):
Diluted 1,067 1,072 1,069 1,074
========= ====== ======= =======
----------------------------------------------------------------------
(1)Represents recognition of deferred royalty revenue in the third
quarter of 2007.
(2)Represents employee stock-based compensation expense associated
with FAS 123R. No employee stock-based compensation expense was
recognized in GAAP-reported cost of sales in any period ending prior
to January 1, 2007.
(3)Represents one-time items related to our acquisition of Tanox, Inc.
in the third quarter of 2007.
(4)Represents the amortization of intangible assets related to the
1999 redemption of our common stock by Roche Holdings, Inc. and our
acquisition of Tanox, Inc. in the third quarter of 2007.
(5)Includes accrued interest and bond costs in the third quarters and
first nine months of 2007 and 2006 related to the City of Hope trial
judgment.
(6)Reflects the income tax effects of excluding employee stock-based
compensation expense under FAS 123R, recurring charges related to the
redemption of our common stock, litigation-related special items and
items related to our acquisition of Tanox, Inc.
(7)Weighted average shares used to compute non-GAAP diluted earnings
per share were computed exclusive of the methodology used to
determine dilutive securities under FAS 123R.
Reconciliation of 2007 GAAP and Non-GAAP EPS Estimates
----------------------------------------------------------------------
Our 2007 non-GAAP EPS estimate excludes the effects of: (i) recurring
amortization charges related to the 1999 redemption of our common
stock by Roche Holdings, Inc., which are estimated to be
approximately $104 million on a pretax basis in 2007, (ii)
litigation-related special items for accrued interest and associated
bond costs on the City of Hope judgment which are currently estimated
to be approximately $54 million on a pretax basis in 2007, (iii)
income tax effect of $63 million on recurring charges related to the
redemption of our common stock and litigation-related special items,
(iv) employee stock-based compensation expense, which we expect the
net of tax diluted EPS impact to be in the range of $0.23 to $0.25
per share for 2007, and (v) items related to our acquisition of
Tanox, Inc., including a one-time in-process research and development
charge of $77 million, amortization of intangible assets in the
amount of $28 million on a pretax basis in 2007, recognition of
deferred royalty revenue of approximately $6 million on a pretax
basis in 2007, a one-time gain on acquisition of $121 million on a
pretax basis in 2007, and the income tax effect on these items of $40
million. Our 2007 GAAP EPS would include the items listed above as
well as any other potential special charges related to existing or
future litigation or its resolution, or changes in or adoption of
accounting principles, all of which may be significant.
The statements regarding the amounts relating to the 1999 Roche
redemption of our common stock, amortization of intangible assets and
recognition of deferred royalty revenue associated with the
acquisition of Tanox, Inc., litigation-related special items and
employee stock-based compensation expense are forward-looking and
such statements are predictions and involve risks and uncertainties
such that actual results may differ materially. The amounts
identified above could be affected by a number of factors, including
a re-valuation of certain intangible assets, greater than expected
litigation-related costs, the number of options granted to employees,
our stock price and certain valuation assumptions concerning our
stock. We disclaim, and do not undertake, any obligation to update or
revise any of these forward-looking statements.

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